What does Dither do in Cycles?
Dithering is a post-processing step that reduces the banding caused by insufficient bitdepth by adding some controlled noise to the image.

Dithering set to 0:


Dithering set to 1:


With Blender's internal renderer, I almost always set it to 1 to avoid banding, but with Cycles, it's less useful because Cycles introduces its own noise anyway.